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STUDY OF MATERIALS MANANGEMENT

A PROJECT REPORT

Submitted by

SUNNY KINI
Batch 2010-12

in partial fulfillment for the award of the degree of

POST GRADUATE DIPLOMA IN MANAGEMENT

Under the Guidance of

Prof. Suhas Prabhu

THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH KANDIVILI MUMBAI

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CERTIFICATE
This is to certify that this project report on STUDY OF MATERIALS MANAGEMENT is a bonafide work of SUNNY KINI in part completion of the POST GRADUATE DIPLOMA IN MANAGEMENT has been done under my guidance. The project is in nature of original work that has not so far been submitted for any degree of this university. References of work and relative sources of information have been given at the end of the project.

Signature of the candidate (Sunny Kini) Forwarded through the research guide.

Signature of the guide

Name of Guide: Prof. Suhas Prabhu Designation: HOD Operations

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ACKNOWLEDGEMENT
Many individual have contributed to this preparation of this project. This project is the result of competence, sincerity, and devotion of the individual who have been involved in this project. It brings great inexplicable mirth to me while expressing my gratitude towards those who have helped me in completion of the project work entitled. “Study of Materials Management” To the satisfactory completion of the project, express my deepest sense of indebtedness to my guides Mr. N.Vibhooshna Raj, Sr. Manager, Warehouse (HPCL) and Mr. Siddharth K Patil, Manager, Materials (HPCL) for their esteem guidance, valuable suggestion and supervision with utmost care and zeal through the course of this project work. I would like to extend my sincere thanks to my internal guide Prof. Suhas Prabhu who gave me continuous source of encouragement and cooperation throughout. Last but not the least; I am thankful to Mr.V.K.Sinha and the entire training department for giving me this self-obligating opportunity.

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ABSTRACT
Materials Management is the operation of continuously arranging the ordering, purchase, receipts & issues so that stock balances are adequate to support the current rate consumption with due regards to economy. It is the mean by which material of the correct quantity & quality is made to be available as & when required in storage & ordering costs, purchase price & work in economy. It is imperative to manage inventory efficiently & effectively in order to avoid unnecessary investments in them. The study pattern used in this study is face-to-face interaction. Experts of different departments have been consulted. Most of the data has been gathered from Main Warehouse and Purchase department of the company. The various aspects covered during the interaction phase were need & features of inventory control, MAXIMO system, Purchase process etc. An attempt is made to cover each & every macros of functioning of Materials department.

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Executive Summary
This report documents the work done during the summer internship at Hindustan Petroleum Corporation Ltd. This project was undertaken with the objective of understanding the Materials Department at HPCL. The study involved a thorough understanding of the process being followed at the Main Warehouse and the Purchase Department. The study involved understanding the warehouse functions of Ordering, Receiving, Binning and Issuing. Also it provided an insight into the purchase functions such as Tendering, Vendor Selection and Order Placement along with the process of Eprocurement, Reverse Auction and Scrap Disposal I have tried my best to keep report simple yet technically correct. I hope to succeed in my attempt.

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15. f. 16. Present Item Classifications. Day to Day Inventory. 6. 5. INTRODUCTION. a. ABC Analysis.NO. VENDOR MANAGEMENT PROCEDURE OF SCRAP DISPOSAL . PURCHASE DEPARTMENT PURCHASE POLICIES PURCHASE PROCEDURE Tendering Technical Review E-PROCUREMENT REVERSE AUCTION FORIEGN PURCHASE Responsibility Letter of credit Types of Documents. c. Ordering Cell. d. MATERIALS DEPARTMENT. 11. Physical Inventory Verification. b. 21. INVENTORY SECTION. 19. RECEIVING SECTION INSPECTION SECTION ISSUE SECTION. IMPORTANT CONCEPTS. Description ACKNOWLEDGEMENT. 3. Addition. 7. 17. c. 13. 9. 3 4 5 8-9 10 11 -12 13-15 16 -20 16 16 17 -18 19-20 20 20 21 22 -24 22 23 23 24 25-27 25 26 26-27 28 29-30 31-32 33-34 35 36-39 36-39 39 40-41 42-43 44-46 44 45 45-46 47 48 6 MAIN WAREHOUSE. 14. b. a. 4. 1. Criteria for Present Stocking Norms. b. OBJECTIVES OF THE PROJECT.TABLE OF CONTENT S. Deletion. ABSTRACT. Inventory Turnover Ratio. 2. Page no. 19. 10. 8. Stock Item. EXECUTIVE SUMMARY COMPANY PROFILE. 18. d. a. a. Nature of Contracts. ORDERING SECTION. 12. b. e. Just-In-Time. a) b) c) 20. Follow Up Cell. c.

22. 25. BIBLIOGRAPHY. 49-50 51 52 53 7 . GRAPHICAL REPRESENTATION RECOMMENDATION CONCLUSION. 23. 24.

HPCL owns the country's largest Lube Refinery with a capacity of 335. Old Corridor Road.5 Million Metric Tonnes Per Annum (MMTPA) and the other in Vishakhapatnam (East Coast) with a capacity of 8. India Address of company HPCL-Mumbai Refinery Bhikaji Damaji Patil Marg.000 Metric Tonnes which amounts to 40% of the national capacity of Lube Oil production. 17.95% in Mangalore Refinery & Petrochemicals Limited (MRPL). Mumbai 400020 Maharastra. Timeline: 8 .400074 Maharashtra. one at Mumbai (West Coast) having a capacity of 6.310 crores ( Audited consolidated) HPCL. Mumbai . It is a Mega Public Sector Undertaking (PSU) with Navaratna status.3 MMTPA. HPCL also holds an equity stake of 16. a Fortune 500 company.40.COMPANY PROFILE Particular Company Name Establishment year Address of Registered Office Details Hindustan Petroleum Corporation Limited 1974 Hindustan Petroleum Corporation Limited. Petroleum House.co. Jamshedji Tata Road.in Rs 1. Mahul. HPCL accounts for about 20% of the market share and about 10% of the nation's refining capacity with two coastal refineries. a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA. is one of the major integrated oil refining and marketing companies in India. 022-25076000 Telephone No E-mail Turnover of the company corphqo@hpcl.000.

5 MMTPA in 1984/85 to 14. 1979: Kosan Gas Company. LPG Bottling Plants. 2687 Crores in 1984-85 to an impressive Rs 1. are taken over and merged with HPCL. On the financial front. over the years. 1974: Hindustan Petroleum Corporation Limited comes into being after the takeover and merger of erstwhile Esso Standard and Lube India Limited. Pipeline networks. • • • • HPCL's vast marketing network consists of 13 Zonal offices in major cities and 101 Regional Offices facilitated by a Supply & Distribution infrastructure comprising Terminals. Aviation Service Stations. 1976: Caltex Oil Refining (India) Ltd. 1952.8 MMTPA presently.000. the turnover grew from Rs.3 Crores in FY 2010-11. has moved from strength to strength on all fronts. 40. 9 . .• 1952: The Company was incorporated in the name of Standard Vacuum Refining Company of India Limited on July 5. Inland Relay Depots & Retail Outlets. the concessionaries of HPCL in the domestic LPG market. Lube and LPG Distributorships. subsequently ratified by an Act in 1977 and merged with HPCL in 1978. HPCL. The refining capacity steadily increased from 5.CORIL is taken over by the Government of India with an Ordinance in 1976. 1962 the name was changed to ESSO Standard Refining Company of India Limited. 1962: On 31st March.

 TO understand MAXIMO system of managing the Inventory.  TO analyze the current procedure of Vendor Development & Rating. 10 .  To understand the process of Materials Procurement.OBJECTIVES OF THE PROJECT  To get practical industrial exposure.  To understand the Materials Management System of Hindustan Petroleum Corporation Ltd.

11 . It is used for the group of activities concerned with purchase of materials and services to the point where they are economically useful. Inventory control. 4. Standardization and evaluation of all products. commencing with determination of materials needs and culminating in the delivery of finished products. Storekeeping and warehousing.INTRODUCTION The term Materials Management is derived from the evolution of the purchasing functions to meet the growing complexity of the industrial structure. Transportation and material handling. Codification. 6.” Materials Management has a wide scope and broadly covers fairly well dispersed functions of management which are as follows: 1. 2. 5. Cost reduction through value analysis. Disposal of surplus / obsolete material. Material planning and programming. Purchasing and outsourcing. 8. Thus Materials Management can be defined as “the concept of operation commencing which systematically integrates horizontally related materials functions. 7. 3. 10. Inspection and quality control. 9. Materials Management is an enterprise for the acquisition and use of materials employed in the production of goods.

alternative sources. sales.Success of materials management department depends on the success of other departments. of items. Continuity of supply. Warehouse and the shipping and distribution of finished products.working closely with Design and research 2. These decisions are taken by different functional specialists. The objectives of materials management are interrelated in many concerns. Product improvement. Interdepartmental Harmony. flexible suppliers.coordinating with Design departments in reducing no. Low prices.Coordinating and assisting other departments in MakeBuy decisions.to be lowest . inventory control & the material handling function.Distribution. 12 . Standardization. hence relations are to be harmonious Scope of Material Management:The scope of material management includes decision on purchasing raw material. Secondary objectives of Materials management1. Economic make-buy. departments for development of new materials and products. High inventory Turnover. Favorable supplier relations. captive suppliers. 2.reduced handling and storage costs.includes transportation: enhances profit. They are as follows: Primary Objective of materials management 1. management & control of work in progress items. 5. New materials and products.Contribution towards product improvement by giving appropriate inputs and assisting Design department. Low payroll costs.value of inventories to be low in relation to 3.supplier development. 6. 4. 3. 5.Low operating costs of material management personnel. The materials flow is divided in to three different overlapping functions – Production control. 4. Reduces storage costs.11. Low cost acquisition and possession.

2. Purchase. Specific Warehouse: Warehouse having a limited line of goods like Cloths and Chemicals.MATERIALS DEPARTMENT The materials department at HPCL has two main sections: 1. Warehouse • A warehouse is as storehouse specially designed for receipt. • Different types of Warehouses 1. Bulk Storage Warehouse: Warehouses that handles liquid goods such as petroleum. General Warehouse: Warehouse with a variety of goods. 2. storage and handling of goods. fuel oil etc. Refrigerated Warehouse: Warehouse where perishable goods are stored. 5. Main Warehouse. 3. Bonded Warehouse: Warehouse authorized by customs officials for storing goods without payment of excise taxes or duties till they are removed. Government laws regulate these warehouse 4. 13 . Warehouses are also called as distribution centres or logistics centres.

Physical verification of the inventory. 9. 10. Receiving the excess materials from the user groups. Field Warehouse: Warehouse hired by an organization in another organization premises. MRR preparation of received materials. Materials Inspection. 6. 7. Material binning. 14 .6. coordination with the inspecting groups. Reordering the stock items. • Different activities carried out in warehouse 1. Following up with vendors for materials after PO placements.In-warding of the materials. Issue of Materials to user groups. 4. 5. 8. 3. Materials receipt. 2. Maintaining the Item Catalogue.Offering the materials for inspection.

Purchase • The term purchasing describes the process of buying. Sources of Supply: It becomes easier to locate desirable sources of supply by means of purchasing records. learning of the needs and following up to ensure quick delivery. 5. sizes. Quality: Quality determines the price of goods. It involves consideration as materials. 4. 15 . designs. • Elements of purchasing 1. goods workmanship. Quantity: Quantity to be purchase depends upon anticipated sales. 3. The supplier tries to secure maximum price for the products whereas purchase tries to secure the same at the most economical rates. colour and patterns. Price: It is an important element of purchasing function. Time of Delivery: It is necessary that all materials for a job arrive in time to avoid delay in work for which the product was purchased. 2.

7. 6. Standing Order 2. Finalizing Delivery Schedule and Price. 4. 8. One Time Order • Standing Order: 16 .• Purchase Cycle 1. Receiving the material in the stores. Bill settlement. Identification of Requirements. 2. Deciding on Quantity and Quality. Placing a purchase order. 3. Selection of Proper source of supply. Arranging the transportation. 5. Important concepts  Nature of contracts is as follows: 1.

• Essential • Regular • Temporary 17 . Technical & Inspection Department.  Stock Items: Stock item can defined as an item having a proper identification code with proper reordering norms. However. Such contracts are usually valid for a period of six months to one year.  Present Item Classifications Presently all the warehouse stock items are broadly classified into four categories i. Turnaround & Development Department develops all regular Standing Orders for normal as well as turnaround maintenance jobs.e. The contracts are developed to attend all start-to-finish type of job requirement with specific delivery schedule. each Maintenance Section also develops certain contracts of this nature on need basis.Standing Orders are generally applicable for service contracts. User sections of Maintenance Department develop these contracts basis recommendations received from Operations. Stock Items are procured by warehouse personnel on the basis of reordering norms and is stored in warehouse after receipts. • One Time Order: These orders cover all one-time requirements for service as well as non-stock material supplies. These contracts are developed for attending various routine nature jobs as and when required on daily.

Shop Spare is available. Non Availability of Spare will lead to production stoppage or major safety hazard or both. Item is equipment Spare & Annual consumption is more than or equal to Four sets. Item will not be treated as Essential if it meets any of the three criteria as given below a. 3. Life can be predicted IV. 2. Item is Substitutable.• Obsolete The present criteria for defining the item categories are as follows: 1. c. Item should be an Equipment Spare. Regular: Item will be treated as Regular if it meets any of the following criteria I. Essential: Item will be treated as Essential only if it shall meet all the criteria given as follows I. II. Item is Consumable & required to be used in more than 4 Months in a year. II. Temporary: 18 . b. III. Annual Consumption should be less than Four Sets.

II. Equipment is no longer in use hence out of service. II. Criteria for Present Stocking Norms At Mumbai Refinery following terminology is being used in the system for Stocking Norms: • Reorder Point 19 . For Consumable a) Item will be required to use in less than 4 Months in a Year 4. Equipment is replaced with an upgraded version and hence out of service & old equipment is not relocated elsewhere. III. c) Item meets any of the three criteria as given below  Shop Spare is available.   Item is Substitutable. Useful Shelf Life of the item expired and hence cannot be used. b) Non Availability of Spare should not lead either production stoppage or major safety hazard. Life can be predicted.Item will be treated as Temporary if it meets any of the following criteria I. Obsolete: Items are treated as Obsolete if it is not required due to the following reasons I. For Equipment Spares a) Annual Consumption should be less than Four Sets.

It is calculated as follows: Safety Stock = 0. Safety stock is required to take care in the event of delay in the delivery beyond the delivery schedules. This term is generally used for Regular Items & at HPCL MR it is being calculated on the following criteria RP= Monthly Consumption x Lead Time in months + Safety Stock Essentiality Level It is the Reorder Point for Essential Items & at MR It is being calculated as follows: EL = Monthly Consumption x Lead Time in months + 1 Safety Stock Safety Stock is the terms used in the context of Regular Items.5 x (Monthly Consumption x lead time in months) Lead Time This is an average cycle time between PR date & Material Receipt date (MRR approval date).  Just -in-Time 20 .• • • • Essentiality Level Economic Order Quantity Safety Stock Lead Time Reorder Point Reorder point is the item inventory level at which new procurement action needs to be started.

This can mean daily. the following is usually considered as the representative distribution of inventor items and value. The B Class Items are somewhere in between. Under ABC analysis the inventory items are categorized as A Class Items. Consistently high quality levels for purchased materials  ABC Analysis: ABC analysis is one of the techniques to control inventory. B Class Items and C Class Items. The basic idea behind just-in-time purchasing is to establish agreements with vendors to deliver small quantities of materials just in time for production. Under ABC analysis. twice-daily. Reduced lot sizes 2. and sometimes hourly delivery of purchased items. The critical elements of JIT purchasing are: 1. The A Class Items tend to be either high volume or high unit cost items which constitute a relatively small percentage of the number of items in stock but a small percentage of the consumption value. Reduced and highly reliable lead times 4. Category A B C No of Items 10-15% 15-20% 70-75% Consumption Value 70-75% 15-20% 10-15% Main Warehouse 21 .Just-in-Time is a philosophy developed in Japan which is aimed at preventing all kinds of wastes whatever their nature and wherever they may occur. Frequent and reliable deliveries 3.

Deletion of Obsolete Items. 3. 2.• Main Warehouse is the place where the materials are received. Issue of Items. 4. • The 4 sections in the Main Warehouse are as follows: 1. 5. Mumbai Refinery. 7. Receiving Section. Receiving of items. Issue Section. Inventory Section. Physical Inventory Verification. 4. 6. 2. stored and supplied to the user for general maintenance of the working plant or unit in HPCL. 3. New Stock Setup. 22 . • The various activities that are performed are as follows : 1. Ordering of items. Ordering Section. Follow Up.

2.g. Process 1. 4. 4.ORDERING SECTION  ADDITION 1. Central. Meter. Safety Stock. Minima. Item category and Vendor Code if the item is proprietary. Re-order level. Surplus and Inventory Adjustment in the inventory module according to their Maxima and Minima and also assign Issue and Receipt Unit e. 5. Enter Item unit and order unit and save info. Create new item number in the MAXIMO and feed item description. 3. Go to the Inventory Tab and select Item Master. Lead time of procurement. 2.e. Upon receiving of MAXIMO for making New Stock Set Up From user Department following jobs to be done by Addition/Deletion Cell Clerks at Main Warehouse. Maxima. Turnaround. feet etc. Enter the no given in the proposal for ERTO stock setup. In Item Tab. Attach these items to the four storerooms i. Login into the MAXIMO. MT . 23 . Each. to avoid duplication of any item.e. entering this data we have to check whether any similar item exists in MAXIMO. Enter Item Category. Before the creation of new stock item i. Approximate Procurement cost. Check whether estimate and supply class of item is properly filled. 3. 5.

After the finalization of PO for Blanket PO’s we have to check for current balance of all the items covered in such PO’s and also to create release PO’s for the same and after approval of the same by our officer we have to either e-mail or fax copy of Release PO to vendor for early expedition of delivery of these materials. Also take out these items from the bins and to kept separately with their respective Tag of item no. Items and needs are ordered only after intimation from user via Email received from user or only after they are reserved in the Work Order of any specific job. We have to enter Stock Category as Obsolete in MAXIMO in all the four storerooms so that mistakenly also they should not be ordered by chance. Description and Obsolete Tag for disposal in future. For about 40% of the total no. Blanket PO for a period of 1to 3 years for which we have to make Standing Order Purchase Requisition in HS Category in which we have to mention that PR quantity. Similar activity is to be done upon receipt of Deletion Memo from user for unwanted spares which are not to be used or ordered in future i.6. 3. 7. These standing orders are to be reviewed at regular intervals.e. 24 . 4. Now in item description. we will give description of the item. of the items we are operating Standing Orders i. We have to physically verify their current balance and the order the shortfall without any delay. they are to be made OBSOLETE. 2. Few of the PR’s we do mention that the quotations received from the vendors to be reviewed either by the user department or warehouse for technical queries/ specification review.  DELETION 1.e. 2. 3. Now enter specification and save it.  Ordering Cell 1.

 Follow up Cell 1. 5. Keep follow up with the transporters for early clearance of material. 6. To collect the original invoices/Lorry Receipt copies from Finance Department and send intimation letters to authorised transporters. To follow up with vendors for early expedition of material on or before due date of PO for making the material available for issue in time. Follow up with Octroi agents for making arrangement for making octroi payments. 4. 25 . After making necessary entries in the material clearance register handover the papers to the authorized transporters for material clearance. by sending Fax through TELEFAX or E-mail or to visit personally at the vendor’s Office for early expedition of the same. Follow up with the inter departments for clearance / delivery of the materials. 7. 3. This job include Telephonic follow up . 2. Xeroxing the original papers and filing the same.

4. Generate Input sheet for physical verification. Issue unit. the report contains the average cost. Transfer the shortages/overages in Inventory Adjustment Storeroom for explanation purpose. Go to the inventory tab in the MAXIMO. the physical verification of the stock items in the bins is done. ii. v. vi. 26 . last date of issue and last count date. Thereafter immediately punch in MAXIMO. storeroom where the items are kept. 2. physical count of each item counted on that day. iii. Category. Login into MAXIMO. Now. 3. Physical count. Here the verification is done by the inventory representative in the presence of the finance representative. Now. Bin number. iv. Review shortages/ overages in MAXIMO in Inventory and try to find out one by one case wise for explanation of these variations and adjust the current balance in respective storeroom. 5.INVENTORY SECTION Physical inventory verification 1. current balance. Process i. Enter the code of the class to be verified. Every year take 100% inventory of all the stock items of Main Warehouse class wise in presence of a finance representative and note manually quantity available in Bin against each item in the Physical Inventory Sheet.

Day to Day Inventory On Daily basis take physical count of all materials issued on previous day so as to find out if any shortage/ overage are created mistakenly & if found to correct the same immediately without any further delay by giving necessary justification. higher the inventory turnover ratio the better is financial outlook and system is considered more efficient. Hence. The major difference between Physical Inventory and Day-to-Day Inventory is that day-to-day inventory deals with the transactions taking place daily irrespective of the class whereas inventory keeps track of all the bins in the inventory class wise throughout the year going class by class. The inventory is checked for overages and shortages by comparing the physical count and the current balance in the MAXIMO. AN INTRODUCTION TO INVENTORY TURNS OVER RATIO: Inventory turnover ratio is defined as the ratio of annual consumption value divided by average inventory holdings. There is considerable scope for improvement in this sphere. INVENTORY TURN OVER RATIO Inventory turnover ratio may be defined as a ratio of Annual consumption (issue) in Rs. Annual Consumption ITOR = Average Inventory This ratio is called Efficiency Indicator. Then the report is finally signed by both the representatives. 27 x 100 . This ratio is also called efficiency indicator. divide by the average inventory in Rs.vii. viii.

D. B. / Average inventory in Rs. Efficient reduction of inventories.in crores 55. Discourage profit-making inventory held with speculative. Discourage flabby inventory due to poor maintenance. Express as percentage the ratio is to be multiplied by hundred.57 ITOR in most of industries in India is around = 1. E.5 Most efficient one in India is around=3 ITOR in abroad-developed countries is between 6 and 8 28 .1 Inventory turnover ratio 55.Inventory turnover ratio= Annual issues in Rupees.13/41.22 Average inventory Rs. How to improve the inventory turnover ratio.13 54.85083 36.32 1. Calculation on inventory turnover ratio Year 2009-2010 2010-2011 Consumption Rs. A.in crores 41. Reduction in critical & non-critical items lying in stock since long period. Identification of obsolete/surplus items and their disposal/utilization. This ratio is called efficiency indicator.85= 1. C.

first check in the MAXIMO whether this particular PO material is pertaining to Material warehouse or not. initials of receiving clerk. In case of rejection. 9. Now bin all the OK material in the respective bin. Inward all the details giving date of receipt. 6. Challan number and date. 5. Thereafter we also have to see whether necessary MODVAT Invoice is submitted or not if applicable. On the arrival of representative of the inspection department offer the material for inspection.RECEIVING SECTION 1. MODVAT received or not. Physically count the material and tally with Delivery Challan for shortfall or Excess. 8. material description. 3. 7. 29 . 4. On receipt of material from the vendor. Keep the material for Inspection. we have to acknowledge the receipt of material along with HPCL stamp and the receiving clerk has to sign on the receipt of material. quantity received. Material Test Certificate received or not. 2. Once this is done. generate Report of Rejection Memo after necessary rejection approval. Upon endorsement of Inspection officer’s remarks get the approval of receiving manager and generate Material Receipt Report.

Now. c.the following parameters are checked: In case of rotating equipment a. Genuineness of spares by checking the related certificates. Dimension. the material is sent for the approval of the inspection department. INSPECTION OF MATERIALS 1. At the inspection department . b. the receipt section sends an email to the respective inspection department for inspection of the relevant material. Hardness testing. Surface finish. 30 . Rejected materials are to be kept separately in Rejected Material Bin area with Rejected Tags so that the materials can be shown to vendor when he comes for replacement. 4. In case of electrical equipment a. Checking specifications with respect to the catalogue.10. 3. 2. d. Material testing. At the time of inspection the representative signs on the copy of the email and verifies whether Test certificate exists. After the material is received at the receipt section. Checking of Test Certificates. b. e.

General visual inspection. On the basis of this report the material is either accepted or rejected. 6. 31 . Checking of operating mechanism. 7. After the reports of inspection are received the inspection manager enters his comments in the MAXIMO and sends the reports for the approval of the inspection manager.c. d. 5. This report is then sent to the receipt department which then takes necessary action on the basis of the reply of the inspection department.

ISSUE SECTION Generate a consolidated report for total material issued/credited for the previous day and attach all the MIRs and MITs in the ascending order of Work Order no. Select the reserved items tab. Default Store is Central. • Upon receipt Of Material Issue Request (MIR) from the user representative. 4. 2. Unless we have to enter the type of storeroom. • Then go to the respective bin for withdrawing the material form respective bins for issue purpose. 5. • Process in MAXIMO: 1. 3. Login into MAXIMO. issuing clerk to verify approving authority’s signature endorsed. to be bound to store room for future record purpose. Go to the issue tab after that. Go to the issue and transfers tab. • Accumulate all the issued material at one place on the issue counter for issue counter for cross verification of material to be issued. 32 .

Select the filter tab. 7.Finally save the report and copy the work order no. 11.In the report select Material Issue Ticket and paste the work order number in the space given below and click on submit. one copy is to be retained along with the MIR for Warehouse record. 33 . • Maintain delivery record register of Chemicals/Catalysts &Gas cylinders to be issued on daily basis and keep track of MIRs received for delivery of the same and post it in the MAXIMO after they are delivered to the respective locations/plants. Select the items in the MAXIMO corresponding to the items in the MIR. second copy is submitted to CISF In-charge and the third copy is to be given to the user department after endorsing issue clerk’s signature on all the 3 copies.6. Enter the work order and copy it. 10.The Material Issue Ticket is then generated. Select filter tab. • Now three prints of the MIT. 8. 9. 12.

the user sends a Purchase Requisition (PR) to the purchase department. 2. 4. • Process 1. Purchase of materials and supplies and award of construction/ service contracts. of three vendors. 5lakhs the tender enquiry should be sent to min. The PR is then sent to approval of the purchase manager. 2. unserviceable and slow moving materials and equipment well as scrap. of six vendors and for less 5 lakhs the tender enquiry should be sent to a min. The Purchase department outlines policies and procedures governing the following functions : • 1. learning of the needs and following up to ensure quick delivery. Disposal of obsolete. 5. surplus.Purchase Department • The Purchase department is concerned with the process of buying. Now depending upon the value of the following tender are generated: 34 . When a requirement of material is generated at the user department. then the tenders are floated. After the approval of the purchase manager is received. Now in case of tenders of value more than Rs. 3.

300 lakhs then limited tenders are generated. 7. then Purchase Order is placed with the vendor. 6. When strict technical specifications are to be adhered to the quotations received from the vendors are sent to the user department for technical review. After this. the price bids of the selected vendors are opened and the vendor with the lowest quote is selected. according to the value of the tender the approval of either the finance department/Head of department/Bids Review committee/Contract Review committee is taken. 9. After the technical review is sent by user department.a. After the approval of the relevant committee is taken. If the value of the tender is less than Rs. If the value of the tender is more than Rs. c. 8. 35 . 300 lakhs then public advertisement is generated. In case of Proprietary items single tenders are generated. b.

The selection of vendors is the responsibility of the Purchasing Authority. Two Bid system should be resorted to when strict technical standards are to be adhered to. All tenders shall be opened in the presence of intending bidders irrespective of value or whether such tenders are limited. Single supplier will be considered in case of proprietary items. 7. Negotiations should be carried out in exceptional cases depending upon circumstances and market trend. and single tender or otherwise. 5. Purchasing Authority handles all the purchases and is responsible for all commitments made to suppliers for equipment. Purchase/services shall not be made or availed from employees and their dependents. If preference is given to certain vendors. 8. 300 lakhs (high value) and above. materials. 9. spares. 36 . will be the responsibility of the Purchasing Authority. 10. 6. equipment spares. 3. 4. 2. Items purchased for personal use of an employee shall not be made. supplies and services. public. Securing of price quotations for materials. supplies and services.PURCHASE POLICIES 1. Public Tender will be resorted to in cases of all tenders having a value of Rs. appropriate reasons should be given for the same.

Single Tenders: "Single tender means tender floated to one party". Single tender enquiry would generally arise in the case of: 37 . In the case of tenders of estimated value of Rs 5 lakhs and above. 300 lakhs shall be through a limited tender except: a. PURCHASE PROCEDURE • TENDERING  TYPES OF TENDERS 1. b. 12. 300 Lakhs) limited tender may be resorted to after approval of the Contracts Committee in: a. The purchase order for MODVAT able locations should clearly mention the basic price and the MODVAT component separately. A case where sources of supply are definitely known and possibility of fresh sources being tapped is remote. Where global tenders are considered necessary. 13. Lowest tender means the lowest of the technically acceptable tenders. Limited Tenders: Tenders of value less than Rs. e-Procurement including reverse auction will be an acceptable method for procurement of materials. A case of established urgency. In cases of high value purchases (over Rs. services and works contract.11. 5 lakhs enquiry should be sent to a minimum of three parties. b. 2. When the sources of supply are not known. enquiry should be sent to a minimum of six parties and for tenders of less Rs.

ii. like repairs to/ overhauling of equipment. Tenders are invited in two parts i. Where particulars cost cannot be obtained in advance of awarding the job. First the Unpriced bids are opened and sent for technical evaluation. iii. 2. When the Services are of a specialized or critical nature which can be rendered only by a single supplier. 38 . Any tender of a value either equal to or above Rs. a. Unpriced Tenders. 3. Public Tender: Tenders should be invited by public advertisement in the press (leading newspaper by circulation) in the following circumstances: i.i. Priced Tenders b. the following procedure should be adhered to: 1. or special formulations available from a single source. iii. ii. 300 lakhs (high value) for all contracts or supplies Where global tenders are considered necessary. Proprietary Items Proprietary items are spares and component parts of a particular brand of existing machinery/equipment which need replacement and which can be obtained only from a single manufacturer/authorized agent. For Public Tender apart from inviting public tenders through advertisement in the press as mentioned above it shall be necessary to publish such notice on the Corporation’s Web Site also. When the sources of supply are not known.e.  PRICED AND UNPRICED TENDERS For inviting tenders requiring strict technical standards.

including prices quoted by him. For the negotiations. After establishing technical and commercial suitability of the offers. 6. 7.The Purchasing Authority . After Technical Evaluation in case of minor changes in techno-commercial scope. delivery terms etc. price bids should be returned unopened.  NEGOTIATION Negotiations can be carried out with bidders only for reduction in price offered by them and not for clarifications or change in specifications. terms and conditions.  RATIONALIZATION Wherever the lowest bidder has been selected for award of contract and a need is felt for amendment in any terms. the corresponding "Priced" tenders should be opened and evaluated within reasonable time from the opening of technical. if carried out it must be intimated in advance to the bidder to ensure that there is no increase in price offered by the bidder consequent to negotiation. While sending these tenders for technical evaluation. revised priced bids may be sought from all the technically qualified/acceptable bidders. 5.User/Quality Control Department 39 . evaluation shall be conducted by rejecting any and for all the parties seeking deviations. If three techno commercial acceptable parties are available. 4. Purchase Department will specify the number of days by which the technical evaluation is to be completed.3.The Finance Representative . price implication may be sought. the awarding authority may use his discretion to authorize: . In the event of major changes after Technical evaluation discussion on account of bidder/owner.

The user department generates the PR of the materials that are required.e. 40 . the purchase department floats the tender for the same and sends it to the vendor (No.Here according to the value of the tender the approval of Head of Department/ Bids review Committee/Contracts Review Committee is taken. The PR includes attachments i. technical and price. First the technical bids are opened and sent for technical review. The decision on acceptance of counter offer shall be taken by the Purchasing Authority with Finance Concurrence.e.to approach the selected vendor for such amendments. the notes to purchase and the notes to vendor. This is called Rationalization. if the LPR estimate is below Rs 1 lakh.  MATCHING THROUGH COUNTER OFFERS If the lowest acceptable offer is more than 20% of the estimated cost as per purchase requisition. counter offers for matching with rates as per cost estimate may be made to the lowest tenderer. Now for the materials where the technical specifications have a clear significance. Now after receiving the PR. 4. the need for appointment of Negotiating Team does not arise. 3. of vendors depending on value of the value of tender). tenders are invited in parts i. 2. Rationalization need not be resorted to. After this evaluation of the bids is done .  TECHNICAL REVIEW 1. As this does not amount to negotiations.

E-procurement is another method of procurement. The steps to be carried out on e- procurement portal will generally be as follows: a. the opening of the bids on due date and time will be in the system with access passwords to the designated officers. Tenderers shall submit bids either electronically or normally.5. In case of e-procurement the following clauses read in conjunction with other provisions will apply : a. 6. Tender opening can be witnessed by participating bidders through remote logins to the system. with techno commercially acceptable bidders. Some vendors on manual and others on electronic mode for the same tender shall not be acceptable. No hard copy confirmation will be required for the same. c. 2. in system in secured mode. Floating tender and receiving bids in soft form. System generated bid analysis. c. d. b. The TR department analyses the technical bids to see whether the vendor is technically competent enough to deliver the materials of the required standards. b. Electronic opening of priced bids or use of reverse auction methodology to establish prices. provided the same is properly authenticated by suitable means like digital certification etc. All communication done with vendors in soft form will be acceptable and considered valid. whether the vendor is going to provide the materials with a deviation from the standards. 41 . Since there will not be any hard copy of the tenders received. Opening of unpriced bids electronically by designated officers. E-PROCUREMENT 1. On the basis of these parameters the technical bid is either accepted or rejected by the technical department.

42 .d. Till the time. reverse auction on e-procurement portal for a bid which is called in manual mode provided price bids are not already opened or to go for face-to-face negotiations with L1 bidder for and electronically called bid subject to CVC guidelines. ii. f. recovery and archival. e procurement is made mandatory for all the tenders. Historical records for required number of years to be maintained in soft form with adequate data backup. e. g. decision to follow manual or e tendering mode will rest with individual purchasing authorities. Audit trails and system logs to be maintained for all transactions on the eprocurement portals/software during complete tendering process. e -tendering and reverse auction can be operated as mutually independent events for the same tender meaning it will be acceptable to go for : i.

43 and . The entire process is designed to bring complete transparency in the bidding process. Some Important Features of Reverse Auction in this on line process: 1. Reverse auction procedure as well as the business rules with process related terms & conditions of the reverse auction shall be described in the tender document and also placed in HPCL website portal. service provider or HPCL. 2. start bid price of each tenderer is expected to be same as in manual sealed priced bid. 4. the qualified bidders get an opportunity to compete on-line in a transparent and fair manner based on the evaluation methodology stipulated in the tender without the identity of bidder getting disclosed to other participating bidders. The process business terms & conditions and modalities unique to reverse auction shall be accepted by each bidder in writing. Bidders cannot increase their bid once the event has opened up. with submission of start bids.REVERSE AUCTION PROCESS Reverse Auction is a procurement process used to secure competitive price by on-line multi bidding among techno commercially qualified bidders. In reverse auction process. before participating in the reverse auction. Identity of bidders never gets disclosed during/post reverse auction process. In reverse auction. Reverse Auction shall be visible to Bidder/HPCL only with user log in password. 3.

11. basis item-wise lowest delivered cost or overall lowest delivered cost. number of bidders in fray.In the event of problems in connectivity during the extended time. complexities of the contract.5. 14. Bidders viewing the PORTAL can see only their BID and the prevailing lowest bid. The room/box needs to be opened in line with procedure for opening of tender. Order shall be placed on the lowest bidder. Bidder must quote for the complete quantity of each item as per the sample calculation sheet provided in the Bid document. Reverse auction shall be held for a period of not less than 60 minutes and shall be automatically extended by a further period of 5 minutes in case of receipt of any bid during the last 5 minutes of the auction period. in as received condition. The time duration and extensions thereof depend on decision in relation to factors such as size of the contract. HPCL reserves the right to further negotiate the prices with lowest bidder for reducing the price/cancel the reverse auction process/tender at any time before ordering without assigning any reason. This process is automated and system controlled. 9. etc. 13. 44 . 6.Any time extensions due to connectivity problems shall be granted at the sole discretion of HPCL. Bidder can reduce his bid repeatedly during the auction period. 10. the bids could be secured in a dedicated FAX NO with communication to all bidders to this effect. This process shall continue until no bids are received in the last 5 minutes of the auction. Thereafter reverse auction shall get automatically closed. 7.On successful completion of the reverse auction. the priced bids received in manual mode shall be returned to the respective bidders. 8. 12.

otherwise the tender shall be floated on a global basis. pertaining to Zones will be handled by the respective SBUs at HQO in their area of operation. if any. A six monthly review and updating of the foreign vendor list shall be made which will be approved by the respective Contracts Committee of the individual SBU's. Mumbai Refinery is responsible for obtaining import licenses and to make all foreign purchases based on Purchase Requisitions received from user Departments/Units. Foreign purchases of individual SBUs i. 45 . Maintaining and updating the vendor data base shall be done by the Individual SBU. The following points will also have to be considered by the Purchase Departments of the respective SBUs and Corporate Office: 1. Foreign purchases.e.FOREIGN PURCHASES RESPONSIBILITY The Materials Department. 3. foreign purchases of items pertaining to LPG-Zone will be handled by the Purchasing Authority of LPG SBU. 2. The respective Contracts Committee of the individual SBU's shall certify that the list of foreign vendors for any item which is proposed to be procured is adequate and exhaustive. For instance. Strategic Business Unit will be handled by respective Purchasing Authorities of the SBUs.

g. for deals between a supplier in one country and a customer in another. • • Letters of credit (LC) deal in documents. LETTER OF CREDIT • Commercial letter of credit (LC) is a document issued mostly by a financial institution. not goods. With a revocable LC. changes can be made without the consent of the beneficiary. • An LC can be irrevocable or revocable.C. used primarily in trade finance. Non Negotiable Documents: Document of title (such as an air waybill) or a financial instrument (such as a crossed cheque) that may not be transferred from the holder or named party to another.4. Letters of credit are used primarily in international trade transactions of significant value. Opening of L. An irrevocable LC cannot be changed unless both buyer and seller agree. and payment thereof based on Purchase Order/Sales Agreement from SBU shall be done up to R 4 crores by the respective authorities. TENDERING 46 . bill of exchange and cheque. • •  TYPES OF DOCUMENTS • Negotiable Documents: Documents/financial instruments which are received by through banks are known as Negotiable Documents. e. Promissory Note.

the clearing agent submits the following documents for clearance from the authorities. steel plates. In respect of purchases of materials including plant. In the liberalized economic environment. 3. equipment. from foreign suppliers. should clearly indicate that the foreign suppliers should forward their quotations directly to the specified officer named in the Tender Notice. These include : a. Suitable clause should be incorporated to provide in the contract. the Indian representative can be allowed with the approval of C&MD. while responding to the tender. machinery. whether through Limited Tender or Global Tender. there would be a penalty of banning business dealings and also payment of specified sum. It will be necessary for the foreign bidder to identify and disclose along with copy of the agreement.Tender should be invited directly from manufacturers either through Limited Tender or through Global Tender. After this role of the purchase department is to oversee the expedition of the cargo by the freight forwarder. the Indian representative. After the delivery of materials by the freight forwarder within the boundaries of India. b. After placing the order. etc. tender enquiries/documents. Packing List 47 . the quotations may be conveyed over the telex/fax to the specified officer on or before the stipulated date. 2. foreign suppliers are operating through Indian representative(s) either under joint venture arrangements or on commission basis. At a later stage. including notice. PROCESS AFTER TENDERING 1. the purchase department or supplier can arrange the freight forwarder. In case of urgency. The same shall be followed by a confirmatory letter from the party. Information on such arrangement should be submitted to the C&MD. that in the event of any breach or default on the part of the supplier to disclose the agency arrangements in India.. before entering into the contract. Tender conditions for imported items should contain a standard stipulation that tender should be submitted directly and not through the Indian representative. Bill of Lading.

seek additional details if required and put up the proposal for the consideration of appropriate VMC basis system generated reports. 4. Freight Bill. Cargo Arrival Notice. After these documents are received clearing agent assesses the Bill of Entry. shall be recorded and will be available in the vendor database.. All vendors will be required to register Online on a web based system. Updation / revision of any information. Vendor Management Officer (VMO) exclusively handles/coordinates VMC activities. shall also be done online and on a continuous basis. Finally after all payments have been made and all documents submitted. Decision taken in respect of approval of registration or rejection. VMO will scrutinize the application. 5. VMC will approve /reject or seek clarifications which will again be managed by VMO. e. vendor profile etc. the cargo is cleared and is transported to the refinery Vendor management Vendor Management Committee (VMC) maintains approved vendors’ list. 4. Administration of the Vendor Management System: 1. It includes the representatives of the Technical. Insurance Certificate.c. All inputs will also be required to be submitted online.000. 48 . d. This officer will report to Head Purchase of respective SBU. Foreign Purchase Order Copy. 3. All the data entered shall be available in the system and can be retrieved with predetermined report formats or query based information. Purchase and Finance department. A hard copy print out of the information entered online in predetermined format will be submitted by vendor to VMO along with necessary registration fee amounting R 5. f. 2.

PROCEDURE OF SCRAP DISPOSAL DISPOSAL PROCESS . c. new vendors approved. Location/Department will : a. d.Head for approval of RFD. and get this cleared by Disposal committee/Team and then forward to Controlling Office/Dept.5. Actual disposal The respective authorities for opening of will a. Invite tenders for disposal. Prepare `Request for Disposal' format for sale of items. Place sale or disposal order/s on selected party/parties. 4. 49 . Evaluate tenders received and obtain approval of appropriate approving authorities. Communicate same to the concerned location.STEPS INVOLVED 1. 3. b. b. Periodical system generated exception reports for location wise pending applications. . Identification and Segregation of items for disposal & Preparation of Request for Disposal (RFD). rejected and existing registration cancelled shall be forwarded to respective CC on quarterly basis. Prepare list of surplus items in Refinery and take suitable action. Identify and keep items for disposal separately. 2.

Delivery and documentation Location/Refinery will: a. GRAPHICAL REPRESENTATION Month wise Inventory Trend 50 . b. Make delivery of items as specified in Disposal Order/Letter.5. Prepare relevant documents such as invoice/debit note. Cash receipt.

 Class wise Inventory .Central Storeroom (as of 31-03-2011) 51 .

52 .

This ultimately reduces the lead time of tendering process as compared to sending it through the post.D. Currently in HPCL the ratio of rate contracts to one time is of 60:40.Companies maintain Email address. By reducing the number of one time orders and making the ratio of 70:30 the inventory cost can be reduced further. Inventory turnover Ratio can be increased by analyzing the movement of spares and maintaining required levels of inventory so as to improve the ratio beyond 1. Currently internet is widely used in most companies . This will help the warehouse department to forecast future requirements and focus on minimum possible wastage. The quotations are received in E-procurement portal and then the data is fed into the ERP system. E-Procurement and ERP (J. 53 .Recommendations 1. thus reducing the cost further.Edwards) system are 2 different platforms. 4. Hence an integration of the two platforms can help to reduce the lead time. However this can also be implemented for supplies in the future as well. Also this can be used for competitive bidding. 3. Feedback from the user about quantity of spares wasted due to obsolescence. Reverse auction is currently used only for service contracts.5 to match Inventory Standards. First 2. This can be used for the purpose of E-mail tendering . 6. 5. tenders are floated in the E-procurement portal. This process causes an increase in the lead time of procurement.

In the light of these facts the warehouse of HPCL-MR is maintaining inventory of above 35. On an average inventories are approximately 30% of current assets in private limited companies in India. Given the fact that inventory management system being followed in the company has strong structure. Also it worth mentioning the role played by the purchase department.g. The Warehouse has been done remarkable job so far relating to inventory control function but with the changing scenarios the importance of inventory management has acquired enormous dimensions. In near future due to the expansion & other stringent measures of quality programme like TQM.000 items. The Purchase also has embraced the automation era by including in its working modern ERP system (J D Edwards).CONCLUSION Inventories constitute the most significant part of current assets of a large majority of companies in India. It has begun introducing the procedure of E-Procurement and Reverse auction show as to bring a higher level of transparency to the entire procurement process. 54 . it has gained from increased use of automation and sophisticated techniques. It is possible for a company to reduce its level of inventories to a considerable degree e. and ISO the company shall have to adopt latest techniques of Inventory Control. 10 to 20% without any adverse effect on production and sales. The HPCL Mumbai Refinery offers India a change to leap frog from above depression to area of global competitiveness and prosperity and regain India’s commercial value. Also it has introduced a modern method of Vendor management.

www. www.co. www.in 3.com 4. 5.BIBLIOGRAPHY  WEBSITES 1.  BOOKS • “Production and Operations Management” By K.com.wikipedia. www.Aswathappa & K.hpcl. www.net 2.in. Wobbler & David Burt 55 . Shridhar Bhat.google. • Purchasing and Supply Management by Donald.mattscorner.mattscorne.